Challenges and choices of Global supply chain dependencies in China
This article was originally published in Italian on Class on 24th December 2025.
Please note that this is a courtesy translation of the Italian language article originally published on Class Issue at: https://www.classxhsilkroad.it/news/industria/dilemma-cina-conviene-produrre-la-o-diversificare-la-supply-chain-202512241128126395
China is today the world’s only true manufacturing superpower. Its scale, speed, and efficiency make it an extremely attractive place to produce and source goods. For years, this strength helped power global growth. Now, it is also creating growing economic and political strains.
These strains show up clearly in trade numbers. In November, China’s trade surplus passed $1 trillion for the first time. Exports to Europe, Australia, and Southeast Asia increased as U.S. tariffs prompted Chinese goods to be redirected into other markets. Europe has felt this shift sharply. The EU’s trade gap with China has widened to about four containers coming in for every one going out, compared with less than three to one in 2019. In the first seven months of the year, China’s exports to Europe grew by nine per cent in container terms, whereas EU exports to China declined by eight per cent.
Chinese exports have continued to gain traction in the European Single Market partly due to technological and quality advancements in some industry sectors—particularly those related to the green transition and advanced manufacturing—leading to more competitive products. But Chinese exports have also been substantially supported by macro-economic developments. For example, in 2025 the renminbi sank to a 10-year low against the euro (EUR), despite China boasting exceptionally high trade surpluses with Europe that are now set to exceed EUR 400 billion for the year.6Moreover, China has now experienced more than three years factory gate deflation as the output in many industries consistently exceeds what domestic and global markets can absorb. Together, these trends have made it even harder for European companies to compete.
The pushback is growing. In 2024, China faced a record 198 trade investigations at the World Trade Organization. Many of these cases came from developing countries, showing that concerns about China’s trade practices are not limited to rich economies.
For global companies, this creates a dilemma. China still offers unmatched manufacturing capacity and a strong innovation base. Its ultra-integrated supply chain remains unique globally. Yet the risks are rising. Trade disputes, policy uncertainty, and long-standing complaints about unequal treatment in government contracts are forcing firms to rethink how much they depend on China. Most European companies operating there are not planning to leave. But fewer are willing to put China at the very centre of their global supply chains.
Recent shocks have reinforced this caution. COVID-19 and the war in Ukraine showed how quickly supply chains can be disrupted. As a result, companies are moving away from “just in time” systems that prioritise low costs and speed, toward “just in case” models that emphasise safety and backup options. This often means using more than one supplier and avoiding reliance on a single country—frequently China, simply because it plays such a large role. The latest instance of such supply chain disruption is the export controls, where imposition of export controls on rare earth elements (REEs) and their subsequent announcement of extraterritorial controls caught many European companies and Europe’s core industries off guard. As a result, from a European Chamber’s survey, 32% of respondents plan to obtain impacted goods from other markets, and 36% plan to work with suppliers to develop capacity outside of the country.
China’s surging exports may be one reason why the country seems comfortable maintaining its current policy direction. The fact that it has been able to achieve most of its self-reliance goals at home while continuing to grow its share of global trade is not only remarkable, but also likely seen as a justification that the current model does not need to be adjusted.
But change is hard to avoid. Factories, mines, and logistics networks take many years to move, and governments, especially in Europe, tend to act slowly. Still, the rest of the world is sending a clear message. The surge in trade complaints shows that many countries see China’s policies as harmful to their markets—and that pressure for change is building.
Precisely how the EU will respond is not yet clear, but it could conceivably choose to develop and implement more targeted policies that—like many of China’s—address specific industrial resilience and economic security concerns, albeit much more limited in nature. While not to be taken lightly, the world we are living in today has proved that such decisions are sometimes necessary. If the EU were to do so, this should not be viewed by China as an additional source of dispute, but rather as a setting of necessary guardrails to determine the scope of productive future cooperation.
By: Avv. Carlo D’Andrea, National Vice President of the European Union Chamber of Commerce in China and Chairman of the Board of the Shanghai Chapter, Founder and Managing Partner of D’Andrea & Partners Legal Counsel
